The Scotia Company issues $100,000, 10% bonds at 102 on April 1, 2010. The bonds are dated... Question: The Scotia Company issues$100,000, 10% bonds at 102 on April 1, 2010. The bonds are dated January 1, 2010, and mature ten years from that date. Straight-line amortization is used. Interest is paid annually each December 31.

Compute the bond carrying value as of December 31, 2017.

Bonds Issue:

Bonds are issued at either par or at a premium or at a discount. The premium or discounts on bonds payable is amortized over the life of the bond. The primary methods used for amortization of bonds payable are the straight-line amortization method and the effective interest method.

Bonds carrying value as of Dec 31, 2017:

Face value of the bond = $100,000 Issue price of the bond =$100,000 * 102% = $102,000 Life of the bond = 10 years Interest is payable annually at 10% The premium on bonds issue = issue price - face value =$102,000 - $100,000 =$2,000

Straight-line amortization of premium on bonds payable = $2,000 / 10 years =$200 per year.

So, the bond's carrying value as on Dec 31, 2017, = $100,400 (refer the working table below): Date Bonds payable balance$ (a) Premium on bonds payable opening balance $(b) Beginning book value of the bonds payable$= (c) (a)+(b) Total interest to be paid (@ 10% annually) on (a) $Amortization of premium on bonds payable$ Interest Expense (Interest payable ? amortization) Premium on bonds payable closing balance $Closing book value of bonds payable$
Jan 1, 2010 $100,000$2,000 $102,000$0 $0$0 $2,000$102,000
Dec 31, 2010 $100,000$2,000 $102,000$10,000 $200$9,800 $1,800$101,800
Dec 31, 2011 $100,000$1,800 $101,800$10,000 $200$9,800 $1,600$101,600
Dec 31, 2012 $100,000$1,600 $101,600$10,000 $200$9,800 $1,400$101,400
Dec 31, 2013 $100,000$1,400 $101,400$10,000 $200$9,800 $1,200$101,200
Dec 31, 2014 $100,000$1,200 $101,200$10,000 $200$9,800 $1,000$101,000
Dec 31, 2015 $100,000$1,000 $101,000$10,000 $200$9,800 $800$100,800
Dec 31, 2016 $100,000$800 $100,800$10,000 $200$9,800 $600$100,600
Dec 31, 2017 $100,000$600 $100,600$10,000 $200$9,800 $400$100,400
Dec 31, 2018 $100,000$400 $100,400$10,000 $200$9,800 $200$100,200
Dec 31, 2019 $100,000$200 $100,200$10,000 $200$9,800 $0$100,000